Bank of England shies away from more QE

Bank of England policymakers have growing doubts about the value of restarting
the central bank's programme of asset purchases, minutes of the central
bank's Jan. 9-10 policy meeting showed on Wednesday.

January's minutes add to growing signs that the MPC is unlikely to restart its programme of asset purchases unless there is a sharp worsening in the global economy.Photo: PA

While Monetary Policy Committee member David Miles maintained his vote for a modest increase in the £375bn pounds of bond purchase to date to £400bn, others said they had become more certain that this was not necessary.

The MPC said the past month's developments had been "modestly positive" for Britain, though growth data due on Friday is still expected to show a sharp slowdown in the last three months of 2012 after an earlier post-Olympics boost.

"While these developments had not substantially altered the balance of risks ... they had strengthened the belief of some (MPC) members that no further asset purchases were required at the current juncture," the minutes said.

January's minutes add to growing signs that the MPC is unlikely to restart its programme of asset purchases unless there is a sharp worsening in the global economy.

In a rare speech late on Tuesday, Governor Mervyn King said the central bank could restart asset purchases if needed, but that they were not a panacea that would solve Britain's underlying growth problem.

And Ian McCafferty, who joined the MPC in September, said last week that restarting quantitative easing any time soon would give little help to Britain's economy and risked raising inflation.

January's minutes showed that these concerns commanded wide support on the MPC.

"There was [...] considerable further scope for asset purchases to lower long-term yields on government and corporate debt and support other asset prices. But there remained uncertainty about their impact on nominal demand," the MPC said.

Disruption to Britain's banking system meant that further asset purchase or quantitative easing might not boost real demand either when capital and jobs needed to be reallocated between different industries.

The MPC also made its strongest statement yet that sterling - despite some recent weakness - might still be overvalued.

"The existence of a significant current account deficit at a time of subdued activity and spare capacity suggested that the sterling real exchange rate might be above the level compatible with the necessary rebalancing of the economy," the minutes said.

The MPC said that it was hard to get a sense of Britain's underlying growth, but their confidence had been bolstered by the United States' fiscal deal and some signs of stronger growth outside the euro zone.

There had been little news to change the central bank's outlook for consumer price inflation, which is likely to remain above its 2pc target in the near term, the MPC said.